10-Q/A 1 pmc10a.txt PMC 10-Q/A - 6/30/00 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 1 to (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission file number: 333-92019 PLASTICS MFG. COMPANY (Exact name of registrant as specified in charter) WISCONSIN 39-1867101 (State of incorporation) (I.R.S Employer Identification Number) W190 N11701 MOLDMAKERS WAY GERMANTOWN, WISCONSIN 53022-8214 (Address of principal executive office) Registrant's telephone number, including area code: 262-255-5790 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes No X The number of common shares outstanding at July 10, 2000 was 3,788,812. PLASTICS MFG. COMPANY AND SUBSIDIARIES INDEX PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets, June 30, 2000 (unaudited) and September 30, 1999 (derived from audited financial statements) 1-2 Consolidated Statements of Operations, Three Months and Nine Months Ended June 30, 2000 (unaudited) and June 30, 1999 (unaudited) 3 Consolidated Statements of Cash Flows, Nine Months Ended June 30, 2000 (unaudited) and June 30, 1999 (unaudited) 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities and Use of Proceeds 11 Item 6. Exhibits and Reports on Form 8-K 12-13 (i)

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-4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. The accompanying condensed financial statements, in the opinion of management, reflect all adjustments which are normal and recurring in nature and which are necessary for a fair statement of the results for the periods presented. Some adjustments involve estimates which may require revision in subsequent interim periods or at year-end. In all regards, the financial statements have been presented in accordance with generally accepted accounting principles. Refer to notes to the financial statements which appear in the Registration Statement filed with the Securities and Exchange Commission on March 9, 2000 (Amendment No. 3 to Form S-1; No. 333-92019), for our accounting policies which are pertinent to these statements. Note 2. Certain legal proceedings are described under Part II, Item 1 of this report. Note 3. Accounts receivable balances include no allowance for doubtful accounts - all balances are fully collectible. Note 4. Inventory is valued at the lower of cost (determined by the FIFO method) or market. The components of inventory consist of the following:

-5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Our revenues are primarily derived from the sale of plastic injection molded parts. The normal practice in the injection molding industry is to be a custom molder, which involves only the manufacturing of parts. However, we also generate revenues by assembly and value-added operations. Our marketing efforts are dedicated towards contract manufacturing of high precision and high quality parts, which includes these assembly and value- added operations. We began operations in November of 1997, and were considered a development stage company through March of 1999. We incurred losses from inception through June of 1999. These losses are primarily due to costs associated with a start-up enterprise, training costs, initial excess manufacturing capacity, higher than average selling and administrative expenses and related costs. We expect to incur a net loss from operations in fiscal year 2000 and 2001 as a result of planned growth for these years. Research and development expenses include expenses for research, design and development of the MGS Group's multi-shot process which permits us to mold different types of plastic resin, typically with different aesthetic and texture qualities, into a single plastic part. Because of our relationship to the MGS Group, we have access to the multi-shot technology and other related manufacturing processes. Research and development costs are not material and are included in the cost of goods sold section of our income statements. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS This report contains certain of our expectations and other forward- looking information regarding the Company pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. While we believe that these forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and all such statements involve risk and uncertainties that could cause actual results to differ materially from those contemplated in this report. The assumptions, risks and uncertainties relating to the forward-looking statements in this report include general economic and business conditions, developments in our planned expansion, availability of adequate capital, changes in the prices of raw materials, and competitive pricing in the markets served by us. These and other assumptions, risks and uncertainties are described under the caption "Cautionary Statement Regarding Forward-Looking Information" set forth in Item 2 of our quarterly report on Form 10-Q for the period ended March 31, 2000. -6- RESULTS OF OPERATIONS SALES. During the third quarter and first nine months of fiscal 2000 sales increased 465% and 491% over comparable time periods in fiscal 1999. The continued rapid increases are primarily attributable to improved plant efficiency, increased customer demand and addition of new customers. The majority of our sales increases are the results of increased volume rather than increases in per unit sales prices. During the third quarter of fiscal 2000 the Company's backlog of unfilled orders, believed to be firm, increased from $13.46 million at March 31, 2000 to $15.57 million at June 30, 2000. We continue to capitalize on our relationship with Moldmakers, Inc. and Prototype Mold & Design, two of our related companies within the MGS Group, to produce tooling as part of our total manufacturing solution. COST OF GOODS SOLD. In keeping with our exponential increase in sales, cost of sales increased 370% from the third quarter of fiscal 1999 to the third quarter of fiscal 2000. For the nine months ended June 30, 2000 cost of goods sold was $20,332,000 as compared to $4,515,000 for the period ended June 30, 1999. However, when expressed as a percentage of sales, cost of goods sold in the third quarter of fiscal 2000 and for the nine months ended June 30, 2000 decreased to 92% and 87% respectively compared to 111% and 114% for comparable periods in fiscal 1999. This decrease allowed the Company to recognize a gross profit of $3,089,000 for the nine months ended June 30, 2000 as compared to a loss of $554,000 for the nine months ended June 30, 1999. Materials as a percentage of molding sales increased between quarters due to product mix and more assembly. Direct labor costs continued to increase in order for the Company to meet current and future sales growth. Comparing labor costs from the second quarter to the third quarter of fiscal 2000 shows a slight increase in labor as a percent of sales from 18% to 20%. Fixed overhead increased from 16% of sales to 18% of sales due primarily to increased health insurance costs. During the third quarter we received credits of approximately $582,000 with respect to various purchase orders for tooling which had been completed by related parties. The credits for the tooling purchase orders reflected adjustments to the contract price to reflect the actual costs incurred by the parties on a time and materials basis. Similar credits of approximately $85,000 relating to purchase orders for tooling were received during the third quarter of fiscal 1999. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses increased from $287,000 during the third quarter of fiscal 1999 to $1,132,000 during the third quarter of fiscal 2000. For the nine -7- months ended June 30, 2000 selling and administrative expenses were $3,215,000 as compared to $660,000 for the period ended June 30, 1999. This increase is due to the addition of sales and management personnel in order to implement our expansion plans into new geographic areas. During the third quarter we reached an agreement to terminate the existing management agreements. The agreements called for us to record a management fee equal to 5% of gross sales payable to various related entities for sales and marketing, consulting and reference services. Under those agreements we incurred a management fee of $104,000 and $784,000 for the three and nine months ended June 30, 2000. Had the management agreements been in place the entire third quarter the management fee would have been $491,000 and $1,171,000 for the three and nine months ended June 30, 2000. INTEREST EXPENSE. Interest expense was $6,000 in the third quarter of fiscal 1999 and $90,000 in the third quarter of fiscal 2000. For the nine months ended June 30, 2000 interest expense has totaled $165,000 compared with $11,000 in the first nine months of fiscal 1999. Interest expense arises from borrowings on our line of credit. Use of our line of credit has and will continue to increase with increased sales levels and the directly related increases in accounts receivable and inventory. INCOME TAX EXPENSE. Income tax expense was a tax benefit of $175,000 for the third quarter of fiscal 1999 and $169,000 for the third quarter of fiscal 2000. For the first nine months of fiscal 1999 a tax benefit of $450,000 was recorded compared with a benefit of $116,000 for the first nine months of fiscal 2000. These amounts are calculated as a percentage of pre-tax income, and reflect, accordingly, the pre-tax loss or pre-tax income at the end of the above stated periods. LIQUIDITY AND CAPITAL RESOURCES We are continuing to finance our operations with a combination of private capital, a bank line of credit facility and leases. In April 2000 the Company obtained an increase in its line of credit from $3 million to $5 million from M&I Northern Bank. Net cash used by operating activities totaled $532,000 for the first nine months of fiscal 1999 and $3.56 million for the first nine months of fiscal 2000. Cash used in operating activities for each period resulted primarily from the necessity of funding inventory and accounts receivable growth in excess of our accounts payable and customer deposits growth. -8- Net cash used in investing activities totaled $222,000 in the first nine months of fiscal 1999 and $1.21 million in the first nine months of fiscal 2000. Cash used in investing activities for each period resulted from the acquisition of leasehold improvements and manufacturing equipment. Net cash provided by financing activities totaled $734,000 for the first nine months of fiscal 1999 and $5.0 million for the first nine months of fiscal 2000. Cash provided by financing activities for each period resulted primarily from draws on our bank line of credit. We believe that current cash balances and available term debt and lease financing will be sufficient to fund our expected growth and related working capital and capital expenditure requirements for the balance of the 2000 fiscal year. We originally anticipated the need for $7 million of additional capital to implement our fiscal 2001 business plan of which $5 million would be required during the fourth quarter of fiscal 2000. We have delayed the expansion plan because of our desire to focus on current operations and delays in raising the necessary capital. The fiscal 2001 business plan still requires the $7 million of additional capital to be put into place. We plan to resume the expansion between the second and third quarters of fiscal 2001. However the start date is dependent upon our ability to raise the necessary capital. We currently anticipate raising the additional capital through the issuance of additional equity securities. Our forecast of the period of time through which our financial resources will be adequate is a forward-looking statement that involves risks and uncertainties. Our actual funding requirements may differ materially from our forecasts as a result of a number of factors including our plans to expand our operations geographically and the expansion of our value added and assembly operations as part of our total manufacturing solution. We cannot be certain that additional funds will be available on satisfactory terms when needed, if at all. If we are unable to raise additional necessary capital in the future, we may be required to scale down our expansion plans significantly. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains certain of our expectations and other forward- looking information regarding the Company pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. While we believe that these forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and all such statements involve risk and uncertainties that could cause actual results to differ materially from those contemplated in this report. The assumptions, risks and uncertainties relating to the forward-looking -9- statements in this report include, among others general economic and business conditions, the availability of adequate financing, changes in the prices of raw materials, competitive pricing in the markets served by the company as a result of economic conditions or overcapacity in the industry, loss of key customer relationships, and manufacturing problems at company facilities. These and other assumptions, risks and uncertainties are described under the caption "Cautionary Statement Regarding Forward-Looking Statements" in Item 1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000, and, from time to time, in the Company's other filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not have a material market risk associated with interest rate risk, foreign currency exchange risk, or commodity price risk. We conduct U.S. dollar denominated export transactions or immediately exchange all foreign currency attributable to export sales for U.S. dollars. Foreign sales for fiscal year 2000 are expected to represent approximately 20% of sales. -10- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are the plaintiff in a lawsuit filed in the District Court of Tarrant County, Texas, which seeks to terminate a lease entered into by us in November, 1999 with respect to a 142,000 square foot building in Fort Worth, Texas. We believe the premises did not meet the requirements of the lease and are seeking a determination by the court that the lease is of no legal effect or, alternatively, has been breached by the landlord. The lease is for a term of seven years ending December 31, 2006 and provides for annual payments of $366,648, $431,880, $518,436 respectively, over the first three years of the term and annual payments of $518,436 over each of the remaining four years of the term. We believe that our legal position is correct and that a court should find in our favor. In addition, the landlord has a duty under Texas law to mitigate its damages and seek another tenant. For these reasons, we do not, as of the date of this report, believe that this dispute will have a material adverse effect on our financial condition or liquidity. Litigation is, by its nature, uncertain and if the lease is held to be enforceable and no other tenant is found for the building it would have a material adverse effect on our financial condition. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The effective date of our first registration statement, filed on Form S-1 (Commission file number 333-92019) under the Securities Act of 1933, was March 13, 2000. This registration statement related to 500,000 shares of our common stock to be sold for cash and 722,490 shares of our common stock which we offered to repurchase for cash. The offering of stock for cash commenced on March 13, 2000 and terminated on June 30, 2000. The repurchase offer terminated on April 14, 2000. No shares were repurchased by us. We sold 38,812 shares in the offering and received net proceeds of $465,744 before deduction of offering expenses (including filing, legal, accounting fees) of $205,555. The offering was not underwritten. No amounts were paid to our directors, officers, or persons who own 10% or more of our common stock or to our affiliates. The net offering proceeds have been applied to working capital. -11- ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K: The following exhibits have been filed with the Securities and Exchange Commission. Exhibits filed as part of this report and listed below are set forth on the Exhibit Index which follows the signature page. EXHIBIT NUMBER EXHIBIT DESCRIPTION 3.1 Registrant's Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form S-1 (Registration No. 333-92019) 3.2 Registrant's By-laws, as amended November 29, 1999 (incorporated by reference to Exhibit 3.2 to Form S-1 (Registration No. 333-92019) 4.1 Form of specimen certificate for Registrant's common stock (incorporated by reference to Exhibit 4.1 to Form S-1 (Registration No. 333-92019) 4.2 Loan Agreement between M&I Northern Bank and PMC, as amended January 18, 2000 (incorporated by reference to Exhibit 4.2 to Amendment No. 2 to Form S-1 (Registration No. 333-92019) 10.01 Mark G. Sellers Stock Option Agreement (incorporated by reference to Exhibit 10.01 to Form S-1 (Registration No. 333-92019) 10.02 MGS Childrens' Trust Stock Option Agreement (incorporated by reference to Exhibit 10.02 to Form S-1 (Registration No. 333-92019) 10.03 Moose Lake Trust Stock Option Agreement (incorporated by reference to Exhibit 10.03 to Form S-1 (Registration No. 333-92019) 10.04 Moldmakers Leasing & Investments Limited Partnership, LLP Stock Option Agreement (incorporated by reference to Exhibit 10.04 to Form S-1 (Registration No. 333-92019) 10.05 Moldmakers, Inc. Stock Option Agreement (incorporated by reference to Exhibit 10.05 to Form S-1 (Registration No. 333-92019) 10.06 Management Agreement Between Registrant and MGS Enterprises, Inc. dated December 31, 1996, as amended and terminated May 1, 2000 10.07 Management Agreement Between Registrant and Moldmakers Management, Inc. dated December 31, 1996, as amended and terminated May 1, 2000 10.08 Management Agreement Between Registrant and Statistical Plastics Corporation dated December 31, 1996, as amended and terminated May 1, 2000 10.09 Master Equipment Lease between Registrant and Moldmakers Leasing & Investments Limited Partnership, LLP (incorporated by reference to Exhibit 10.09 to Form S-1 (Registration No. 333-92019) -12- 10.10 Master Equipment Lease between Registrant and PCI Consulting and Leasing, Inc. (incorporated by reference to Exhibit 10.10 to Form S-1 (Registration No. 333-92019) 10.11 ITW Paslode, Cordless Tool Group Supply Agreement (incorporated by reference to Exhibit 10.11 to Form S-1 (Registration No. 333-92019) 10.12 Agreement to Assume Obligations With Respect to Rescission Shares entered into between Registrant, Mark G. Sellers, and certain MGS Group companies (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to Form S-1 (Registration No. 333-92019) 10.13 Lease on Germantown, Wisconsin, Facility (incorporated by reference to Exhibit 10.13 to Form S-1 (Registration No. 333-92019) 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to Form S-1 (Registration No. 333-92019) 27.1 Financial Data Schedule (electronic filing only, quarters ended June 30, 1999 and 2000) (B) REPORTS ON FORM 8-K: None. -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 to be signed on its behalf by the undersigned thereunto duly authorized. PLASTICS MFG. COMPANY August 8, 2001 SCOTT W. SCAMPINI Scott W. Scampini Executive Vice President-Finance (On behalf of the Registrant and as Principal Financial Officer) -14- EXHIBIT INDEX (dagger) TO FORM 10-Q OF PLASTICS MFG. COMPANY FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 Pursuant to Section 102(d) of Regulation S-T (17 C.F.R. Section 232.102(d)) EXHIBITS FILED AS PART OF THIS REPORT: Exhibit 27.1 Financial Data Schedule (electronic filing only, period ended June 30, 1999 and 2000) (dagger) Exhibits required by Item 601 of Regulation S-K which have previously been filed and are incorporated herein by reference are set forth in Part II, Item 6(a) of Form 10-Q to which this Exhibit Index relates.

PLASTICS MFG CO 10-Q/A